July 2, 2012 / 6:46 PM / 5 years ago

TEXT-S&P comments on Micron Technology

July 2 - Standard & Poor’s Rating Services announced today that Micron Technology Inc.’s agreement to acquire Elpida Memory Inc.’s business from Court-appointed trustees for announced consideration of $2.5 billion does not have an immediate impact on our ‘BB-’ rating on Micron due to uncertainties related to the potential transaction. These uncertainties include the ultimate success of closing the transaction because of pending court, creditor, and regulatory approvals required to consummate the transaction. Partially offsetting concerns of volatile industry conditions, as well as acquisition cost and integration challenges, Micron does have flexibility within its current rating, including debt capacity, liquidity from cash balances of approximately $3 billion (inclusive of its $1 billion April convertible notes issuance), and prospects for an earnings recovery over the coming year. In addition, if successful, the combination could enhance Micron’s position in the DRAM and the overall memory market. The company also announced today that it expects to structure the transaction in part through six installment payments spread from December 2014 through 2019, which could provide greater financial flexibility through increased cash flow relative to debt. We expect Micron’s costs to acquire and integrate Elpida’s capacity could be an incremental burden, offset over time by opportunities to avoid capital expenditures for incremental capacity and other synergies, as well as by mobile DRAM business growth. We expect Micron’s capital expenditures will continue to amount to over 20% of its revenues for the next several years. In our summary analysis on Micron (published June 28, 2012, on RatingsDirect), Standard & Poor’s noted that Micron’s ‘BB-’ ratings and negative rating outlook reflect current weak memory market conditions, near-term potential acquisition spending in support of industry consolidation, and increased leverage. Micron’s negotiations to acquire Elpida are a demonstration of its continued participation in semiconductor memory industry consolidation. If Micron’s acquisition spending and acquisition integration costs increase such that leverage approaches 3x or more, we could lower the ratings. We note that Micron has some room within its rating for additional leverage, considering that its debt to EBITDA represented 1.8x at March, pro forma for $1 billion senior convertible notes issued in April, the proceeds of which have bolstered liquidity and could be used to help fund the Elpida acquisition. Micron’s EBITDA has declined over 30% year over year to $2.1 billion for the 12 months ended March 2012. We expect EBITDA to recover much of the decline in fiscal 2013, supported by solid-state drive (SSD) spending, DRAM sector consolidation, recovery of the hard-disk drive sector, and industry inventory replacement.

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